From earth to heaven: The changing drivers of monetary policy
Government
Business cycles in advanced economies are increasingly driven by global rather than domestic shocks. This column shows that global shocks now account for about half of the variation in interest rates, more than double their role in earlier decades. They also differ systematically from domestic shocks: global shocks have a larger supply component, greater volatility, more persistent effects on inflation, and are more often associated with monetary tightening. Central banks also appear less
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